By Vik Kirsch, Mercury Staff, Guelph
Guelph-based Skyline Inc. has reached a milestone - it's turning itself into a private real estate investment trust to attract new money.
"It will allow us to make bigger and better acquisitions," says Chief Executive Officer Jason Castellan.
That's important to a company that already has more than $92 million in real estate holdings - and a goal of $500 million by 2010.
Similar to the way a mutual fund is a basket of stocks, a REIT is a collection of real estate but with tax advantages for the corporation and investor.
REITs pay lower corporate taxes because they pass on most of their profits from steady income to their investors, who in turn pay them at the lower dividend rate.
Essentially, investors benefit from the income generated by Skyline's rental and commercial holdings.
They're currently receiving more than nine per cent yield from a basket of properties overseen by Castellan and two other partners, Chief Sustainability Officer Roy Jason Ashdown and Chief Development Officer Martin Castellan, Jason Castellan's brother.
Over the next two weeks or so, the company is completing details of its investment offering as a REIT and filling appropriate documents with the Ontario Ministry of Finance.
Fifteen years ago, the brothers bought their first rental property at the same time Ashdown was buying and managing properties on his own.
The three teamed up and incorporated Skyline in 1999 to put together syndicates of investors in properties, mainly in Guelph but extending to other parts of southern Ontario.
Until recently, Skyline was also a property management company for other firms, but curtailed this to concentrate on the REIT.
"We only manage what we own," says Ashdown.
Currently, company holdings are 85 per cent multi-residential apartments and the remainder commercial buildings.
Pierre Panet-Raymond, an Ottawa-based stock broker and Research Capital Vice-President, says a private REIT like Skyline could be rewarding to knowledgeable, well-heeled investors, but that the investment would be easier to buy and sell if the shares traded on a stock exchange.
The Skyline executives reply that it's too expensive for a small company to list on a stock exchange, and, as a private firm, Skyline shouldn't experience the same volatility as publicly traded companies.
"This REIT was born because of operational advantages," Jason Castellan says, seeing a way of raising more capital from financial institutions and other investors to buy buildings. "Some financial institutions are reluctant to bankroll rural properties, for example, but a REIT with a combination of rural and urban properties is generally viewed by them as a better mix."
"It diversifies the portfolio geographically," adds Ashdown.
"Further, a REIT isn't like an oil investment fund whose resources in the ground eventually run out," Jason Castellan emphasizes.
There are plenty of opportunities, he concluded, for a company like Skyline to grow in lockstep with the southern Ontario economy, including the robust Guelph area.
"A lot of people overlook their own backyard," says Castellan.
While no investment is recession-proof, Ashdown contends that a REIT like his is "recession resistant," reasoning no matter what the economy does, people will always need places to live and work.